M id A tlantic Real Estate Journal — December 18 - January 14, 2020 — 11A
www.marej.com
M id A tlantic R eal E state J ournal
By Don Konz, Donohoe Real Estate Services/CORFAC International Bethesda, MD 2020: Coping with adversity by preparing for 2021
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the submarket’s excellent loca- tion “inside the Beltway,” adja- cent to abundant restaurants and shopping and unrivalled public infrastructure. We cou- pled our move with two office acquisitions totaling almost 400,000 square feet and devel- opment of 700 luxury high-rise apartment units. Now, like many other land- lords dealing with the slow- down in office leasing and stay- at-home restrictions keeping tenants away, our attention has turned to upgrading and re-branding our properties, de- termining best-practice build- ing operations, and rethinking our marketing. Prospective
tenants touring Bethesda will notice a lot of new features at many buildings. Among the improvements we’ve made to our portfolio include sought after tenant amenities such as fitness rooms and large-format conferencing, refurbished lob- bies and common areas, and exterior façade renovations. On the property management side, we have improved health safety protocols and are making wholesale upgrades to building mechanical systems where cost appropriate. And, like other brokers, we have incorporated remote and video technologies to help market available space and used this time to formulate
new promotional campaigns addressing tenant’s pandemic- related concerns. The fruits of these proactive efforts re- main to be seen, but owners of older buildings are hoping to emulate the results achieved at newly built properties that have achieved 100% occupancy at, or even before, delivery. Despite the current leasing metrics, Bethesda is as healthy an office submarket as there is in the Washington DC region. In addition to the efforts that landlords are making, local and state government and civic groups are also doing their part to promote a better future. Important community infra-
structure improvements such as the Purple Line Metro and Wisconsin Avenue upgrades have continued during the pandemic. And, the business community, through organiza- tions like the Bethesda Urban Partnership, remain engaged in their endeavors to keep Bethesda a great place to work. All these groups have a vested interested in striving now to create a better future once the pandemic eases. Everyone is working to put 2020 in the past and to look forward to 2021. Don Konz is associate vice president of Donohoe Real Estate Services/CORFAC International. MAREJ
he big real estate story of 2020 in Bethesda, and everywhere really,
is the nega- tive impact C O V I D - 1 9 has wrought o n o f f i c e building and leasing fun- dament a l s . But the news is not all bad.
Don Konz
During the pandemic, public infrastructure improvements have carried on, and local build- ing owners, including several notable national landlords, are using this time to make im- provements to their properties. These events point to a brighter future, albeit a couple of years out, after the pandemic. During the mid-2010s, ‘down- town’ Bethesda was one of the Washington, D.C. Metro-area’s strongest office submarkets, growing to more than 8MM square feet and boasting a va- cancy rate lower than the over- all region. Dynamics started to reverse in the late-2010s as demand for office space lessened. That trend has con- tinued during the pandemic with Bethesda suffering almost (500,000) square feet of net absorption YTD. As it stands today, fierce competition exists amongst landlords for quality tenants, and urban Bethesda’s overall vacancy rate is approximately 16%, about 2 percentage points higher than the D.C. region, ac- cording to CoStar. Rental rates too have reversed the long-term trend, and growth has flatlined – today’s average asking rate in the submarket is just above $40/SF for all office categories and at least 10% higher for class-A properties. At the same time, Bethesda is seeing a con- struction boom that will exacer- bate vacancy rates in the short term. In late 2019, the first of several trophy-quality office buildings came online, and today approximately 1.2MM square feet of office space is under construction, includ- ing the massive new Marriott headquarters. All these factors are weighing on owners’ minds and foretell tough times ahead, while positive activities are happening that give hope to a future rebound. When our firm, The Dono- hoe Companies, relocated to Bethesda in 2018, we were attracted not only by a strong business environment, but also
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